Terrace Hill eyes residential fund

29th Jun 2010 14:45

Property developer and investor Terrace Hill believes there is an opportunity to create a closed end fund focused on the residential investment sector. This would provide Terrace Hill with recurring management income to help cover its overheads. Management believes that institutional investors are interested in this type of fund. Terrace Hill is working with Aegon Asset Management to set up a fund which would start off by buying some of the property company's existing residential properties. Terrace Hill has a portfolio of 1,963 residential units valued at £269m. That includes 1,713 units held by 49%-owned Terrace Hill Residential. Occupancy levels are 93.8%. The residential operations have a net asset value of £26.5m out of the group figure of £78.4m. The development operations account for a bigger chunk of that NAV. The current focus for the development business is food stores. Two developments involve Sainsbury's while another two involve unnamed retailers. Manchester and the North West offer potential for this business. On the office side, the focus is central London or pre-let buildings elsewhere. Terrace Hill is preserving cash and not paying a dividend. Net debt has been cut by £9m to £89.1m over the past six months. This has been achieved through property sales. Gearing is 91.3% and the average maturity of debt is 16 months. The residential properties are more highly geared than the developments. However, if the debt of associates and joint ventures is included the net debt figure is £223.5m. That represents gearing of 229%. Terrace Hill Residential has total bank debt of £205.6m and a net asset value of £4.81m - £2.36m of that is included in the residential division NAV. The group NAV improved from 36.9p a share to 37p a share. At 18.5p each, the shares are trading at a 50% discount to NAV. The triple net asset value, which includes valuations above book value offset by tax, is 41.8p a share so the discount is even greater on that basis.